Negative Cash Flow vs. Selling at a Loss

Selling a HouseYou own a house that costs you $2,500 a month between the mortgage, insurance, property taxes, and maintenance expenses. But in your area, the house won’t rent out for more than $2,000 a month. And if you sold the house now, you’d take a loss because you owe more on the mortgage than the house is currently worth.

You know you’re losing money, and you don’t want to be losing money, but you’re facing a bit of a conundrum. Should you continue renting out the property at a $500 per month loss, or should you sell the property and take a loss on the sale instead?

This is the type of scenario that plagues many homeowners. It’s a tough decision to make, but it’s one you’ll want to figure out fairly quickly if you want to mitigate your losses to the best of your ability. Let’s take a look at what you might want to do if you’re faced with renting at a negative cash flow or selling your house at a loss.

Why Might You Rent at a Negative Cash Flow?

Although continuing to rent at loss means you’ll lose money every month, there’s always a chance your rental property will appreciate over the coming months or years. And if you do believe your property will experience a significant increase in value, it may make sense to keep renting it out.

In this instance, you’re renting at a $6,000 annual loss, but if your property appreciates $40,000 over the next 12 months, and you sell it while it’s up, you’ll sell at a net gain. But an important question here is whether you can afford to take that $6,000 loss while you wait for your property to gain value.

Could that monthly loss leave you financially vulnerable in other areas?

Why Might You Sell at a Loss?

Have you looked into what the real estate market is projected to do in your area? Do experts think it’ll get hotter? Or do they predict it’ll bottom out? Because if you’re already operating at a loss, and your house ends up losing value, you’ll be stuck with an even greater loss if you wait to sell.

Should you choose to sell now, there’s a selling option that may allow you to cut your losses somewhat. This option is known as a short sale, but to take advantage of it, you’ll need to prove to your lender that you’re currently facing financial hardship and have no other option.

With a short sale, your lender must first agree to the sale because your house will end up selling for less than you owe on the mortgage. Rather than taking a loss yourself, your lender will take the loss, but because this sort of sale is far from ideal for the lender, it will negatively affect your credit.

Selling your house to a cash home buyer is another option if you’re not seriously upside down on the mortgage and want to sell as quickly as possible. When you sell to a cash buyer, you can sell your house exactly as it stands, and the buyer will pay you fair market value for the property in cash. Most cash buyers can close in as little as a week, and they don’t charge commission fees or transaction-related costs. When all is said and done, you may end up saving quite a bit compared to selling your house with a realtor.

What’s the Best Option for Your Financial Health?

Ultimately, whether you continue renting at a loss or you choose to sell at loss should depend on your current financial health and what the market in your area is projected to do.

If you can afford to take a temporary loss while your house appreciates, there’s a chance you could sell for a profit. But if you’re already in a rocky financial position, and the future of the market doesn’t look good, it’s probably best to get out quickly. That way, you won’t risk suffering more of a loss than the loss you’ll take right now.

Need to Sell Your House Fast? Contact KM Home Buyers

If you’re looking to sell your house fast so you can get out from under an underwater mortgage, don’t hesitate to get in touch with our team at KM Home Buyers! We buy houses throughout Hillsborough, Pinellas, Pasco, Hernando, Manatee, and Polk Counties and can have a no-obligation offer in your hand in as little as 24 hours. Even better, we buy houses in any condition, so even if you own an eyesore, we’re ready to take it off your hands.

To learn more about selling your Tampa-area home for cash, give us a call today at 813-213-4884 or contact us online to request an offer, and we’ll be in touch right away.

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